SSAB ends talks with Tata Steel: What’s next?

Mumbai: Swedish steelmaker, SSAB withdrew its interest to take over Tata Steel’s IJmuiden steel mill in Netherlands attributing it to the technical challenges in aligning with the Swedish steelmaker's sustainability strategy.“We have carefully evaluated Tata Steel IJmuiden and have concluded that an acquisition would be difficult for technical reasons. We cannot be sufficiently certain that we could implement our industrial plan with the preferred technical solutions as quickly as we would wish,” said Martin Lindqvist, President and CEO at SSAB, in a public statement on Friday.SSAB cannot align Tata Steel Ijmuiden with the company’s sustainability strategy in the way desired, said Lindqvist.While announcing the Q2 results, steelmaker Tata Steel said that it was in discussions with SSAB concerning a possible acquisition of the IJmuiden steel mill and related downstream assets.The company also initiated the process to separate Tata Steel Netherlands and Tata Steel UK in order to pursue separate strategic paths for both the businesses in the future.Tata Steel in a BSE Filing confirmed that SSAB has withdrawn its initial interest for Tata Steel Netherlands business.“Tata Steel wishes to confirm that it is committed to arriving at a strategic resolution for its European portfolio. Tata Steel’s IJmuiden plant is among the most environmentally efficient and cost competitive steel producers in Europe,” Said the company in the statement.Other deal-breakersBefore Tata Steel announced the separation plan and started talks with SSAB, the company in May 2020 was started negotiating with Germany’s Thyssenkrupp for a possible merger almost a year after the two companies called off a joint venture proposal, citing European Commission’s objections.Later in November Tata Steel received expressions of interest for the UK unit from global steelmakers including Liberty House promoted by Sanjeev Gupta and Jingye group, a Chinese conglomerate, but the talks were called off.Impact on the valuationsAnalysts had estimated that the sale will result in a better cash inflow for the company in order to reduce the burden on the parent as well as to work on Tata Steel’s EU assets.“Assuming a normalized Ebitda/t of US $60-80 on 6.5mt sales, IJmuiden has Ebitda potential of $390-520mn. At 5-6x enterprise value per Ebitda, the asset could get transaction EV of around $2-3bn,” said a report by jefferies when the plan was announced.Our sum-of-the-parts-valuation has US$0.8bn EV for TSE, and we estimate Ijmuiden sale can drive net value unlocking of around $1.2-2.2 billion, the report added.However, the valuation is likely to come down after the company could not complete any deal that came.We have to look at the valuation of Tata Steel with these assets (EU and Netherlands) and then the firm without these assets. The ability of TS to make an impact on valuation of the EU Assets is seemingly difficult due to the management control. “If we have to say whether their valuation now will get affected, yes. Tata Steel tried to change their old method of steelmaking to become more Carbon neutral but all those capital investments the company has been avoiding for some time, that will have a bigger impact on the valuation and of course given that many companies now dropping will just add up,” said Saurabh Bhatnagar, National Leader, Metals & Mining, EY India.What’s next for Tata Steel UKThe company has said that it continues to talk with the UK Government and is committed to undertaking some deleveraging exercise in its India operations.“Currently, around two third of the business of Tata Steel is based in India with best in class, highly cost competitive assets and strong cash flows and Tata Steel remains committed to undertake significant de-leveraging in FY21 and beyond,” the company said in its BSE Filing.Analysts believe ArcelorMittal could be a possible contender for the sale of the Netherlands unit.“The options now are ArcelorMittal clearly and that will depend on the desperation of Tata Steel to get rid of the asset…there are a couple of Russian companies who would be interested, but Tata Steel will have to start it from scratch,” said EY’s Bhatnagar.There are these Russian companies who may still be open to talks, Tata Steel will have to make conversations with them…like Severstal Russion Steel, Tata Steel is in good partnership with them, they exchange technology, they share Bon-homie with others as well, added Bhatnagar.The company will not hold on to the asset much longer, they will focus on selling this unit, using the money to pay for the EU operations and get rid of that as well, that will be the plan…And now ArcelorMittal could be one option, maybe a final bet to look at, said yet another analyst requesting anonymity.

from Economic Times https://ift.tt/3cpJrKA